Is Giving Employees Stipends for Health Insurance Risky?

Cash stipends could lead to age-discrimination claims and more issues for small-business owners.

Experts have predicted that more companies—particularly smaller ones—will drop their health insurance coverage under Obamacare and opt to give their employees a cash stipend to pay for health insurance. After all such a move could help small businesses contain their health care costs and avoid the hassles of navigating and complying with the Affordable Care Act.

Some employers now wonder whether that decision would expose them to legal risks.

If you replace insurance coverage, which is given equally to all employees, with a sum of cash that doesn’t actually buy the same amount of benefit for each of your employees, are you practicing age discrimination? I suspect it could be an issue because a set amount of money will buy less insurance for older workers.

The problem, he says, is that Obamacare premiums are age-rated—meaning older people still have to pay more money for health insurance.

Downs asks whether companies, to avoid accusations of discrimination, would have to give a larger stipend to older employees in order to make sure it adequately covers their health insurance costs and raise that stipend every year to address the changing costs of insurance on the exchange.

The Times asked some lawyers for their input. Some lawyers said it wouldn’t likely be an issue for companies to give cash stipends to workers because all workers would be given the same amount of cash—even if that cash didn’t go as far for certain employees.

Others, however, said there could be age discrimination concerns depending on how the stipends are doled out. Gleb Rigby, a labor lawyer in Houston, said if the stipend is contingent on employees using it to buy insurance, it starts to resemble a formal employer-sponsored health plan.

Unfortunately for employers, the lawyers agreed, it’s hard for a business owner to know whether they face age discrimination issues until an employee actually sues them.